Item 1.01 Entry into a Material Definitive Agreement
(a) Private Placement
As previously disclosed, on July 12, 2016, the Company closed a private placement (the “Private Placement”) of $4,444,444.44 principal amount of Convertible Debentures (the “Debentures”) and Common Stock Purchase Warrants (the “Warrants”). The Debentures and Warrants were issued pursuant to a Securities Purchase Agreement, dated July 12, 2016, (the “Purchase Agreement”) between the Company and certain accredited investors within the meaning of the Securities Act of 1933, as amended (the “Purchasers”). Upon closing of the Private Placement, the Company received gross proceeds of $4,000,000 before placement agent fees and other expenses associated with the transaction.
As a part of the Private Placement, the Company issued Warrants to the Purchasers. The number of shares for which the warrants are exercisable was reported incorrectly. The Purchasers have received warrants providing them with the right to purchase up to an aggregate of 7,092,952 shares of the Company’s common stock at an initial exercise price of $0.3264 per share.
In addition, the Company issued to Aegis Capital Corporation, the placement agent in connection with the Private Placement, warrants providing them with the right to purchase up to an aggregate of 1,063,943 shares of the Company’s common stock at an initial exercise price of $0.3264 per share. The warrants issued to Aegis Capital Corporation contain substantially the same terms as the warrants issued to the Purchasers.
On July 20, 2016, the Company and the Purchasers entered into an Amendment to Securities Purchase Agreement and Consent to Modify Debentures (the “Amendment and Consent”). The Amendment and Consent permits the Company to repay up to $2,000,000 of indebtedness owed to Sillerman Investment Company IV, LLC (“Sillerman IV”), an affiliate of Robert F.X. Sillerman and also permits the Company to revise its existing Line of Credit with Sillerman IV to provide a line of credit to the Company of up to $5,000,000. In addition, the Amendment and Consent provides that, while the Debentures are outstanding, Mr. Sillerman will guarantee that the Company shall have $1,000,000 available in its commercial bank account or otherwise available in liquid funds. At any time when the Company’s available funds fall below $1,000,000, Mr. Sillerman will provide the amounts necessary to make-up the shortfall in an aggregate amount not to exceed $6,000,000; however, the first $5,000,000 of the guaranty shall be provided by drawing down on the Company’s Line of Credit with Sillerman IV. Any remaining amounts, up to a maximum aggregate of $1,000,000 shall be provided by Mr. Sillerman.
In connection with the Amendment and Consent, the Company also entered into a Subordination Agreement to permit the transactions contemplated by the Amendment and Consent and an amendment to the Exchange Agreement as described below.
(b) Exchange Agreement
As previously disclosed, on July 8, 2016, the Company and Sillerman Investment Company III, LLC (“SIC III”), Sillerman Investment Company IV, LLC (“SIC IV”), and Sillerman Investment Company VI, LLC (“SIC VI”), each an affiliate of Robert F.X. Sillerman, the Company’s Executive Chairman and Chief Executive Officer, entered into an Exchange Agreement pursuant to which Mr. Sillerman and certain of his affiliates will exchange debt and
securities for shares of common stock of the Company. In connection with the transactions contemplated by the Amendment and Consent described in (a) above, the Company entered into an amendment to the Exchange Agreement to provide that advances of up to $5,000,000 under the amended Line of Credit being provided to the Company by Sillerman IV would be exchanged at a price of $0.3133 per share.
Because Mr. Sillerman is a director, executive officer and greater than 10% stockholder of the Company, a majority of the Company’s independent directors approved the amendment to the Exchange Agreement.